Needham starts coverage of Klarna at 'hold'; shares up

Shares of buy now, pay later lender Klarna KLAR.N up 1.8% to $46.32 early Tues as Needham initiates with 'hold' rating, saying risk-reward is currently balanced

Needham becomes first brokerage to start coverage, per LSEG, since the Swedish fintech's U.S. debut last week after ~$1.4 bln IPO priced at $40

Klarna is a global leader in the BNPL space with $114 bln in gross merchandise volume, Needham analyst Kyle Peterson writes in note, adding he likes co's full banking license which provides a competitive edge on funding

However, he points out that Klarna in May stated it planned to start re-hiring customer service agents, and says he's concerned this course reversal on artificial intelligence will take an 'AI premium' out of the shares, and could crimp margin expansion

While Klarna generated significant attention when it supplanted Affirm AFRM.O as a partner to Walmart WMT.N, which Peterson says should help top-line growth, he thinks "it will actually be a net negative for KLAR given Walmart's notoriously tough negotiations with partners and the fact that KLAR gave 15 million warrants to Walmart (strike of $34) to 'seal the deal'"

From a valuation perspective, Peterson says KLAR shares are trading at 56x FY27 P/E, saying co's growth outlook and improving profitiability are largely priced in

Goldman Sachs, JP Morgan and Morgan Stanley were among a 15-firm underwriting group for Klarna's IPO, and will be permitted to issue research reports next month after the industry-standard quiet period ends